U.S.-China Trade Deal Already in Doubt

 

Trump Chaos Rattles China Trade Negotiations Before They Even Begin

Just days after President Trump claimed success in trade disputes with China, disagreement over the details have emerged. That rings with a familiar tune.

The Trump-Kim Summit this past June in Singapore raised similar doubts about what, if anything, was actually accomplished. It turns out that even with a loosely worded document we now know that nothing was formalized after that highly touted success.

While North Korea continues to develop missiles and possibly more nuclear weapons, Trump complains he hasn’t been offered the Nobel Peace Prize for his efforts. 

The Saturday Trump-Xi dinner in Buenos Aires didn’t even offer anything in writing and journalists were left guessing why applause erupted from behind closed doors as the dinner ended. There was no press conference or photo op to clear up the issue as Trump & Co. headed for the airport.

After landing, Trump claimed Chinese auto tariffs were being lifted. The White House has now walked that back. Trump claimed China would spend over $1 trillion on U.S. goods. His economic advisor Larry Kudlow said that was more aspirational than specific and would be determined by private entities and economic conditions. Trump said if China doesn’t make bold moves in ninety days, he’s Mr. Tariff, and then suggested the timeline might be extended.

No one knows what success looks like three months from now, and that’s a serious problem.

Now China has expressed its discontent with the White House version of winning it all. Yet again, Trump excels at undiplomatic posturing while others are left to clean up his mess.

The pattern here is clear. Trump’s erratic words cannot be trusted, only managed, even by those closest to him. It’s another episode of “Promises Made, Promises Broken.”

U.S. markets didn’t like that kind of uncertainty, and along with other negative financial news on Tuesday, they shed over 3% in one of the worst days in their history. 

Making matters worse, US Trade Representative Lighthizer replaced Treasury Secretary Mnuchin as lead negotiator. Lighthizer is a known China hawk, and while having someone strong-willed and skeptical at the table is an advantage, if the lead isn’t considered to be negotiating in good faith that will not end well for bilateral relations or the international trading system.

The most likely outcome at the end of February will be China claiming they did everything they said they would do and the U.S. saying whatever they did wasn’t enough.

Chinese state media has already started making the list and announced increased punishments for firms found guilty of IP theft, but will they be implemented?   

If Trump really wants to reduce the trade deficit, protect intellectual property, and remove investment barriers, he and his team are going to have to be far more disciplined than they have been to date, and that seems highly unlikely.

Playing loose and fast with the facts, tweeting exaggerated wins, and painting Chinese negotiators into a corner will not make this relationship work. Both sides have to be able win.

 

G20 – What to Watch

G20 – What to Watch

 

 

11/30/18 – Updates on potential Trump-Putin meeting below.

The city center is bulking up on barricades and armed officers as world leaders being arriving for this year’s G20 meeting. Some 22,000 security personnel are being enlisted to keep the peace as anti-globalization and leftist political protests are expected, though they’ll be confined to a largely emptied part of town. The Argentine economy is under significant stress with 45% inflation and the peso more than doubling over the last two years against the dollar. Major parts of downtown will be completely closed, including cafes and shops. 

Saudi Arabia’s Crown Prince Mohammed Bin-Salman arrived on Wednesday and French President Macron is on the ground today. Trump is expected Friday along with several hundred press in tow. How many are fake news, but real people, will likely be tweeted ad nauseam starting late Saturday as Trump winds up his 48 hour stint in Argentina. 

Here are a few of the potentially most controversial issues to come out of the annual gathering.

 

Will there be a joint statement? 

After the debacle at APEC where the U.S. and China were at loggerheads over the final text and in an unusually thuggish move, the Chinese delegation stormed the offices of the Papua New Guinea Prime Minister’s office demanding changes. In the end there was no agreement over language for a final statement, the first time since APEC’s founding in 2003. 

For context, those final statements are mostly aspirational with very watered down, benign language that all participating countries can sign off on. They aren’t even legally binding. Early drafts are usually negotiated well in advance.

Will the same happen at the G20 with an even more complex set of issues in play including climate change (which Trump doesn’t believe is a scientific fact), migration (U.S. troops still on the border with Mexico), economic growth, health, sustainable development, the international financial architecture, and a host of other issues in addition to an “Action Plan.”

For comparison here’s a link to last year’s statement. 2017 G20 Leader’s Declaration 

 

Lots of Deals, or Not

Part and parcel of G20 gatherings are major business deal announcements and project financing, aka deliverables. Most, if not all of these, have either been in the works for months or already started, but it makes the event look like a venue where things get done. China is funding Argentina’s fourth nuclear power plant and if the proliferation of China’s ICBC bank branches across the capital are any indication, financial ties are strengthening even during Argentina’s economic downturn (Citibank sold its retail operations to Santander in 2016 further shrinking U.S bank presence in the country.)

Teatro Colón (Colón Theatre) in Buenos Aires
Site of cultural event for Leader’s Summit

What, if anything, will the U.S. be announcing in terms of large deals in Latin America? The re-negotiated NAFTA with Mexico and Canada is already old news as is Argentina’s new beef exports to the U.S. China’s financing largesse is likely to overshadow any announcements by Trump unless the numbers are “bigly” and “yuge.” There are no signs of that happening.

Trump-Xi Statement

Rumor has it Trump and Xi are meeting for dinner on Saturday night, with the venue and menu yet to be reported. The outcome of that feast may well determine the near-term future of global trading relations, major stock market movements, and a wave of punditry over the temperature of a new Cold War. Trump’s economic adviser, Larry Kudlow, tried to strike a positive tone this week suggesting a deal could be made over the tit-for-tat tariffs that have roiled markets, while hedging with a statement that China needs to offer more. Trump, with his illimitable bravado, threatened even more tariffs.

Meanwhile China’s President Xi continues to travel the world (most recently Spain) and continues to tout support for free markets and the allure of China’s growing market. So far there’s been no mention of structural reform and there likely won’t be. State-owned enterprises are a fixture of China’s Communist Party rule despite its turn towards capitalism, and no threat from the U.S is going to change that. 

 

Trump-Putin Meeting

Update 11/30/18 12:54 – Russia says a meeting with Trump is still on as with other leaders. WH says nothing has changed. They may be splitting hairs on what “meeting” means. Technically a “pull aside” is not an “official” meeting since it doesn’t involve a formal sit down with advisors, etc. and can take place for a very short time. A pull aside also doesn’t carry the same gravitas as a formal meeting, but leaders still talk to each other, and usually without press or even a briefing afterwards.

Update 11/29/18 11:45 – Trump tweets cancellation of his G20 meeting with Putin citing Russia’s continued seizure of Ukrainian ships and crew. That leaves door open if they’re released in the next two days, but suspicions swirl that this has to do with more Cohen revelations of pursuing a Moscow deal during the campaign.

Official White House Cancellation of Putin Meeting Announced via Tweet

As of 11/29 the meeting has been cancelled via Trump’s tweet and then on 11/30 Russia says they will still meet. Who knows what “meet” means anymore.

No matter how this pans out, the on-again, off-again announcements make the U.S. look weak and confused. If Trump does end up meeting Putin, even in an “unofficial” pull-aside, he appears to be dancing to Russia’s balalaika (stringed Russian musical instrument.) There will be no time for an in depth discussion of Iran, missile treaties, Ukraine, North Korea, Syria, or a handful of other pressing issues. 

It’s amateur hour in Buenos Aires for the U.S. delegation, in part or by design thanks to Trump’s inability to stay on point and engage with the international community in any strategic way. Have no doubt though that WH Comms will spin this as a series of successful events during an intense two days of high stakes diplomacy.  

. . . It will certainly be a whirlwind few days of summitry, though don’t expect any mountain peaks to be topped with major announcements. 

If you like this post please share it widely and often. For Twitter updates join the conversation @brianpklein.  Thanks.

What the China Stock Market Crash Really Tells Us (and What It Doesn’t)

Monday morning headlines were more sobering than a double shot of espresso, adding anxiety to an already tumultuous few weeks in China. The Shanghai index dropped 8.5%, in one day, again. This after a see-saw struggle to regain momentum with similar drops from mid-June’s dizzying peak of over 5,000.

The consequences of such a serious correction, with a Monday close at 3209.91, are neither dire nor surprising and the ensuing panic will likely bring out a host of incorrect linkages.

Here are three misconceptions of what the crash seems to mean, but doesn’t.

1. The China market crash will destroy the U.S. economy

U.S. exports to China totaled a mere 7% of total U.S. exports year to date. Canada and Mexico represent a combined 34%.

Exports in general make up an extremely small percentage of the U.S. $18 trillion economy (about 8%) and exports to China represent an even smaller amount.

Over two-thirds of all U.S. economic activity is driven by consumers. The biggest impact on that activity is whether people feel they have more money to spend today than yesterday, not on whether day traders in Pudong are pulling their money out of Sinopec shares.

2. Shanghai and Shenzhen stock markets represent the broader Chinese economy  

Usually a broad-based stock market sell-off represents a belief that the underlying economy isn’t going to do as well going forward as it has in the past. That’s the rational explanation assuming near perfect knowledge of economic conditions. Even the U.S. market doesn’t work that efficiently (there are sell-offs even without new negative economic information.)

In China, knowledge of the broader economic slowdown has been around for a while. If the markets were rational they should have been dropping when the government announced lower growth targets back in March. They should have dropped as alternate economic measures hinted that the official 7% growth rate might not be reached.

Instead they continued to climb based primarily on two non-economic beliefs. The self-fulfilling prophecy that the market could only go up and that the Chinese government would prop up any market weakness. Win-win.

Since domestic savers have very limited choices of where to put their money, once the real estate two-step dance was over (buy one to live-in, buy one to hold) the stock market became the only game in town attracting a flood of capital. That rush caused prices to rise which attracted even more investment, much of it borrowed on margin. Thus the illusion of a perpetually rising market.

The Shanghai composite has now dropped below the magical 3,500 level where many believed the Chinese government would step in with massive buying to push prices back up. The illusion of invincibility appears to be faltering. Meanwhile online sales in the real economy continue to expand.

In this market there is no irrational exuberance with Chinese characteristics, just irrational exuberance as rationality returns to the market.

3. The China sell-off is similar to previous Asian financial crises   

In 1997 the Thai Baht came under heavy pressure resulting in large scale contagion throughout the region. A heavily reliance on trade with a market-determined exchange rates drove this spread. China has neither.

China’s yuan, despite recent changes, remains a managed currency. The government still decides on its opening daily price. That means speculators cannot significantly alter its value beyond a government imposed trading band of +/- 2 percent per day.

China’s economy is also far less reliant on trade than in the past as government investment in infrastructure as well as real estate development have become main drivers of growth. Of those industries dependent on trade China’s recent devaluation made Chinese exports cheaper (a dollar or euro buys more today than in the recent past).

What does the recent sell-off really tell us?

The Chinese government is going to have an increasingly difficult time trying to stop the carnage. Despite conventional wisdom, it does not have unlimited power. By even trying to manage the sell-off, policymakers have placed themselves in an extremely difficult situation.

If they can’t right the market as people expect the government looks weak. If they impose even more draconian rules to stop sellers from liquidating they may kill interest in the market as a whole. Lose-lose.

Apple’s Tim Cook, for one is not that concerned about purchasing habits in China. Let’s hope that the nascent middle class has more cash stashed at home that they’re willing to spend than most people think.

Meanwhile the China market crash has caused a flash sale on a host of solid U.S. equities.

China Devaluation Latest Sign of Market Weakness

The People’s Bank of China (PBOC) devalued the renminbi yesterday in the latest sign that market forces continue to weaken in the world’s second largest economy.

Exports have fallen. Growth is likely far slower than the official 7% rate. Electricity usage is down. Steel production has declined. Infrastructure investment yields less impact. Even demographics highlight a shrinking workforce (enter the robots). And then there’s the stock market, largely divorced from the underlying economy and gyrating like hips at a hula hoop competition.

Currency devaluation will do little to reverse these trends.

As a short term fix it may help exporters whose goods are now cheaper to buy abroad, slow capital flight (it costs more to convert renminbi into other currencies) and potentially attract more foreign investment into the country (a U.S. dollar today buys more renminbi than a dollar yesterday).

But the underlying economic uncertainty in China’s partial transition to domestic led growth will continue to weigh heavily on the minds of international investors and policymakers alike.

If China truly wants to make the renminbi a global reserve currency the PBOC will have to reverse itself and let the currency float freely like the yen, euro and pound. That requires giving up managing a trading band around a fixed daily rate. Economic conditions would have to improve significantly before moves in that direction resume (almost certainly a gradual step-by-step process).

None of this means a hard landing for China’s go-go economy, but resorting to a currency devaluation highlights the limited policy options left for a government navigating increasingly choppy waters.

Remaining moves (and ones largely ignored to date) include government heavily investing in a social safety net, improving health care coverage and promoting more affordable housing. That will allow households to free up some of their savings to spend and spur new business creation.

Until this happens expect more partial solutions and continued volatility.

In-Sourcing the U.S. Middle Class

In-Sourcing the U.S. Middle Class

Welcome back American manufacturing. U.S. in-sourcing (global companies bringing jobs back to the U.S. that were previously sent overseas) hit the mainstream news cycle again this month. An in-depth Atlantic article by Charles Fishman on GE’s plans to manufacture  high-end appliances has drawn exceptional attention. James Fallows, also in The Atlantic, provided the China context.

President Obama gave a January speech on bringing jobs back to the U.S. where he said:

 

“I don’t want the next generation of manufacturing jobs taking root in countries like China or Germany.  I want them taking root in places like Michigan and Ohio and Virginia and North Carolina.”

Among the notable companies announcing in-sourcing plans this past year Apple plans to spend $100 million on new domestic (U.S.) production capabilities and Starbucks’ $172 million investment in a Georgia plant (net 140 jobs, that’s some capital intensive, high-productivity work). White-collar workers appear to be gaining as well. General Motors plans to hire up to 10,000 U.S.-based IT workers, starting with 500 employees at an Austin, Texas innovation center.

The in-sourcing or reshoring “trend” isn’t exactly new. Otis Elevator announced plans to move jobs from Mexico to a new highly-efficient plant in South Carolina more than a year ago. Chesapeake Candle, one of the featured companies at the White House event actually opened its first U.S. factory back in July, 2011.

These jobs mostly aren’t the same ones that went overseas for lower-wage, low-skill workers overseas in the first place either. Garment manufacturing, for example, won’t be making a comeback.

What companies are finding, however is that the total cost for manufacturing abroad to sell back into the U.S. were never fully accounted for (shipping, training, quality control, etc.) When they are, it turns out, semi-skilled to high-skill work closest to where the products will be sold is more profitable than manufacturing overseas and sending them back.

Significant obstacle remain for these anecdotes to turn into a trend.

 

 

 

 

 

 

 

 

 

 

 

 

 

First and foremost worker’s need re-training. Without significant investment in, dare I say it during these tough fiscal times, education, the skilled workforce won’t materialize to make these now isolated cases cascade into a wave of better jobs for America’s workforce.

Beyond education there remains a stultifying restriction on educated immigrants. Vivek Wahda in a July Foreign Policy piece makes the case for focusing on reform as many talented students leave the U.S. after finishing their studies because they can’t get green cards to stay. And if they could stay they’d likely either fill the numerous unfilled tech jobs still floating around in this glum economy, or start businesses of their own.

The Republican-led House passed legislation in November to give 55,000 science and tech grads per year an immediate path to permanent residence. That’s a start but not nearly comprehensive enough. Millions of illegal immigrants on which this country depends need to be turned into tax-paying members of the workforce. The legislation is unlikely to pass both the Senate and the President’s desk without major additions.

Without changes to education and immigration the U.S. risks a serious and long-lasting hollowing out of the middle class. That would prove disastrous for an economy that relies on consumption for 70% of its annual gross domestic product.

 

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Photo: Wikimedia Commons, depression-era soup line.

Mfg Data: http://unstats.un.org/unsd/snaama/dnllist.asp

Half-Time in America is Over, It’s Decision Time

Half-Time in America is Over, It’s Decision Time

They lined-up half a block down the street, forty to fifty people at first, in 35 degree weather well before 8:00am. Parent’s with young children bundled up against the cold, women and men in business suits, in old jeans, in work-out clothes. Hispanic, White, African American, and Asian. No one forced them to show up. No one cut the line. All stood as strangers to each other in a simple, silent procession of cooperation and civic pride.

They came and they waited and then one by one they went inside. All the while the line outside grew longer, the wait half an hour or more. Some held coffee or a paper, but most looked around every time a person who entered came back outside, as if something important had just happened.

On election day everyone who votes is a celebrity, a representative, an agent of change in a social ritual that renews hope, promises a better future and gives an incomparable feeling of freedom.  Something important did happen behind those doors. Volunteers donated their time to help forge a more perfect union between citizens and their government. People voted and they were transformed.

And no matter what their beliefs, their race, their religion, education or profession, or how much money they have in their pockets, on this day, in this line, at this moment, they stand equal among their peers – one person, one vote.

Then it’s over, sticker in hand, back out into the cold to go their separate ways. That’s America and that tens of millions of people will voluntarily go out of their way and spend time in civic ritual at polling stations all across this country renews a hope in the experiment of democracy that grows stronger, every vote, every election.

Half time in America is over. It’s decision time. Choose wisely, but choose.

Despite Global Slowdown, Prosperity on the Rise

Despite Global Slowdown, Prosperity on the Rise

The Legatum Institute, an “independent, non-partisan, public policy organization” based in London came out with their annual Prosperity Index this week. Among the key findings in an analysis of 142 countries around the world: From 2009 to 2012 prosperity* rose in every region despite the global economic downturn. Central Asia and Southeast Asia top the charts with index scores rising approximately half a point followed closely by Sub-Saharan Africa and East Asia. Unsurprisingly the U.S., Asia Pacific (including Japan and South Korea) and Europe round out the bottom. Other findings include:

  • Prosperity may not be growing at the highest rates in North America, Europe and the Asia Pacific writ large, but advanced economies in these regions still dominate the upper echelons of overall rankings  ( 40 out of the top 50).
  • However, the U.S. fell to #12 overall and out of the top ten for the first time with a lackluster showing in Economy (#20) and Safety/Security (#27) sub-indices. Of particular concern “Fewer US citizens agree that working hard results in success.”
  • A country on the move, Indonesia jumped 26 spots since 2009 finishing 63rd overall this year. China finished at #55 with a strong showing on Economy and Social Capital indicators but failed to break into the top category across all other sub-indices with a particularly poor showing in Personal Freedom (#129) and Safety/Security (#101).
  • The largest sub-indice gains were found in Entrepreneurship/Opportunity and Health while Social Capital and Governance barely changed. Safety/Security declined driven by the Arab Spring and high rates of theft and assault in Latin America.
  • Accountable government was seen as a “key stepping stone to prosperity” with the notable exception of India, where corruption concerns continue to grow, falling ten places. Twenty-seven of the top thirty countries in the index are democracies.
  • A strong correlation was also found between tolerance indicators and high overall prosperity rankings. Win won for immigration and integrative social values.

* Prosperity was defined as income and wellbeing which include both numeric data and survey results standardized for statistical comparison. Details on their methodology can be found here and their full press release.

De-Politicizing Benghazi – CNN Commentary

De-Politicizing Benghazi – CNN Commentary

(Also on CNN’s GPS website)

A recently publicized series of State Department email by CNN lays out in harrowing detail the attack on the U.S. Consulate in Benghazi. They are sure to provoke another round of finger-pointing and more politically-motivated pabulum.

At 4:05pm: “The Regional Security Officer reports the mission is under attack. Embassy Tripoli reports approximately 20 armed people fired shots.; explosions have been heard as well.”

Ambassador Stevens and four other personnel, according to the same email, are in the safe haven and the 17th of February Militia is providing security support. Based on this early assessment it appears the situation is under control. Diplomats are safe. Armed entities are defending.

Further reassurance comes at 4:54pm: “Embassy Tripoli reports the firing at the U.S. Diplomatic Mission in Benghazi has stopped and the compound has been cleared. A response team is on site attempting to locate COM personnel.”

Unfortunately all was not under control, the compound was overrun, and Ambassador Stevens died along with three other personnel.

The political spin machine has been busy politicizing this tragedy since its onset. The same Congresspeople that cut State security funding hauled up department officials to berate them on the lack of high security at the Consulate (the same happened after the disastrous 1998 bombing of the U.S Embassy in Nairobi.) In the second Presidential debate Romney berated Obama for taking so long to identify the attack not as an unruly mob but the work of a specific terrorist organization (even though Obama did characterize the attack as a terrorist act shortly after events unfolded).

In another email released by CNN Ansar Al-Sharia claimed responsibility on Facebook and Twitter. Aha, go the conspiracy theorists, proof the administration knew but didn’t say anything for weeks. But no, that doesn’t prove a thing.

On any given day in the complex world of threat analysis people and groups make all kinds of claims. It isn’t as if terrorists are holding a press conference for the world’s media to ask questions. Individual bits of information are simply that. Single puzzle pieces that tell very little about the full picture of what happened until amassed and reconstructed.  Details must be verified, cross-checked and analyzed before informed assertions are made.

This very small selection of email give the impression of control but information at the beginning of any crisis is often hard to come by and spotty at best. No single account could immediately identify a specific attacker. Even establishing the facts of a traffic accident requires a police report and potential review by a judge or jury. It’s a process. An armed assault on a U.S. diplomatic mission, thousands of miles away, in a far flung province recently freed of civil war creates an infinitely more complicated undertaking. It requires, it demands time to assess and judge.

There are ways to address the serious issues involved in the loss of our diplomatic personnel. Inquiries can and should be made. Did the rush to set up a presence in Benghazi trump normal security procedures? Why was a rosy picture being portrayed of a post-uprising Libya when in fact serious threats remained. How critical was it to set up a new consulate in the first place?

Using the attack in Benghazi as fodder for more November electioneering, however serves only the short-term interests of those who benefit by not giving the security of our diplomatic missions the thorough review (and funding) it requires. This does nothing to ensure the future security of our diplomatic personnel. They deserve better.

Post-Debate Wrap-Up: The Candidates on Asia

Post-Debate Wrap-Up: The Candidates on Asia

The final 2012 U.S. Presidential Debate went off without a hitch last night as both candidates stuck closely to their foreign policy talking points. China was meant to feature prominently with time devoted explicitly to the bilateral relationship. After brief opening remarks both Obama and Romney veered off topic and returned to the jobs question, a perennial favorite whenever China comes up.

What we know of the candidates’ positions from last night’s sometimes testy exchange paint a picture of a complicated U.S. relationship with the world’s second largest economy. These include concerns over the loss of domestic manufacturing, rule of law and growing military strength balanced against commercial opportunities half a world away (see full transcript starting with the China question here.)

Romney came out swinging with the now somewhat antiquated claim that China is a currency manipulator. In his own words:

“We’ll also make sure that we have trade relations with China that work for us. I’ve watched year in and year out as companies have shut down and people have lost their jobs because China has not played by the same rules, in part by holding down artificially the value of their currency. It holds down the prices of their goods. It means our goods aren’t as competitive and we lose jobs. That’s got to end.

They’re making some progress; they need to make more. That’s why on day one, i will label them a currency manipulator, which allows us to apply tariffs where they’re taking jobs. They’re stealing our intellectual property, our patents, our designs, our technology, hacking into our computers, counterfeiting our goods.

They have to understand we want to trade with them. We want a world that’s stable. We like free enterprise, but you got to play by the rules.”

Technical issues aside (as the Treasury Department has ruled against that legally very specific manipulator charge in the past), inexpensive Chinese manufactured goods are the result of low cost labor, economies of scale and exchange rates.

No matter what happens the jobs lost to China (and many other countries including Mexico, Turkey, India, and Bangladesh), including low-end garment production, household goods, and assembly work won’t be returning. If Chinese products became more expensive production would shift to other low-wage countries. Check the labels the next time you go shopping and you might be surprised where clothing is manufactured these days.

Even if Romney as President labeled China a currency manipulator, the remedy includes tariffs against Chinese goods. As the moderator Bob Scheiffer accurately pointed out, that would risk a trade war with China. Romney replied that China exports more to the U.S. than the other way around so they have more to lose. This simplistic version of trade does not reflect the realities of international commerce.

Sudden tariff increases would be a particularly reckless course of action which does absolutely nothing to solve the core problems facing U.S. labor, namely better paying U.S. jobs. The effects of punitive action would wreak havoc with trade on both sides of the Pacific and the intricately linked global supply chain.

China’s currency has also been appreciating over the past several years and labor costs are rising as well. Romney’s missive, along with the ear-catching phrase that they “must play by rules” which Obama also reiterated, did little to address real trade frictions like further opening of Chinese markets to U.S. goods, greater Chinese enforcement of intellectual property rights protection, and cracking down on counterfeits entering the U.S. That’s more of what we needed from both candidates.

Obama countered with his own “get tough” strategy including an increasing number of WTO cases levied against China (most of which are won by the U.S.) that did give temporary advantage to U.S. manufacturers of tires and steel. Both industries, however are slow growth and lacking in innovative strategies to remain globally competitive.

Clear examples and real world solutions were needed, only the solutions part was sorely lacking.

On the security front there was precious little mentioned about China’s rise, the U.S. pivot to Asia, tensions in the South China Sea, North Korea, or recent China-Japan disputes. Obama did say:

“We believe China can be a partner, but we’re also sending a very clear signal that America is a Pacific power; that we are going to have a presence there. We are working with countries in the region to make sure, for example, that ships can pass through; that commerce continues. And we’re organizing trade relations with countries other than China so that China starts feeling more pressure about meeting basic international standards.”

And then the conversation veered off into Detroit autos and cuts to education. There was no grand U.S. policy towards Asia offered by or asked of the candidates.

For the most part U.S. voters aren’t even that concerned about U.S. foreign policy when it comes to picking the president. What they want to see is a candidate capable of securing the country against threats, decisiveness and calmness under pressure. The real concern remains jobs, jobs, and then jobs. That’s why the debate consistently put foreign policy back into the domestic context.

All the candidates really needed to do was get in a few good verbal punches here and there and stay off the ropes. That’s what the debate delivered, but little else.

 

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U.S. Presidential Debate – A Foreign Policy Primer

U.S. Presidential Debate – A Foreign Policy Primer

With two weeks left before election day candidates Obama and Romney tackle foreign policy issues tonight. If last week’s battle royale over the economy is any indication this promises to be a no-holds-barred verbal slug fest. Tremendous changes have occurred over the last four years in the Middle East, Europe and Asia. Osama Bin Laden is dead, the wars in Afghanistan and Iraq are over. Dictators have fallen from decades in power. China continues to rise.

Still, the global economy has yet to fully recover with Europe teetering on the edge of recession and Japan mired in stagnant economic waters. Middle East political movements struggle to sustain new democracies and China’s economic and military advances raise questions about Asia’s future balance of power.

Here’s a primer on some of the big issues likely to be addressed and a few questions that need to be asked. The debate begins at 9:00pm EST.

Middle East

Since Obama took office four years ago a surprise Arab Spring swept across the region. Libya, Egypt, and Yemen saw leadership changes brought about by popular uprisings. Syria is still mired in its own civil war with little hope of quick resolution. While nascent democracies sprung up after the overthrow of decades of dictatorships serious questions remain about their stability and policies going forward.

For now the Muslim Brotherhood in Egypt holds a tentative control with the military watching from behind the scenes for any signs of the nominally secular government turning into an Islamist stronghold. Libya meanwhile struggles with establishing a strong central government as events in Benghazi, where the U.S. Consulate was destroyed and diplomats killed by a terrorist attack, demonstrate.

In Iran a nuclear standoff continues with enrichment activities racing ahead and Israel threatening attack (though as sanctions take a deeper bit out of the Iranian economy Israeli President Netanyahu has eased off the war rhetoric).

The U.S. military withdrawal from Afghanistan marks the end of major U.S. operations in the region, closing a decade-long period of intervention initiated by the former Bush administration. The Afghanistan government still struggles with providing basic services to its people and countering threats of Taliban violence.

What will Obama or Romney do to further promote democracy in the Middle East without inflaming anti-U.S. sentiment? How can Iran’s nuclear ambitions be eliminated? Is Afghanistan going to slip into chaos once U.S. troops leave?

Asia

China’s inexorable rise gathered speed since January 2009. It completed construction on its first aircraft carrier, became the world’s second largest economy, and has survived the worst of the global economic meltdown with one of the world’s best growth rates. U.S. economic ties with China remains strong which has helped keep domestic inflation low.

Potential flare-ups, however in the South China Sea (with neighbors Vietnam and the Philippines) and East China Sea (with Japan) linger behind the facade of China’s “peaceful rise”. A once in a decade political transition is also underway with China’s new leaders expected to be officially acknowledged on November 8th and installed in March, 2013. Trade frictions are on the rise with increased WTO cases on goods ranging from tires to solar panels. The economy has slowed considerably from the unsustainable double-digit sprint of years past. Some economist predict much tougher times ahead as China’s new leadership faces a country in transition unlike any other time in recent history.

North Korea too has changed since Obama first took office. A young and relatively untested new leader, Kim Jong-Eun rose to power seizing every major military, political and governmental role in quick succession since his father’s passing. In one of the world’s most isolated regimes the family political dynasty remains intact. Hopes for significant economic liberalization have so far failed to materialize and tensions persistent on the world’s last Cold War front.

What does China’s rise mean for U.S. security and economic growth? Is China’s strategic intent to replace the U.S. as main regional influence and what will the U.S. do about it? What will you do as President to reduce tensions on the Korean peninsula and end the decades-long hostilities between North and South Korea?

Europe

Germany, the powerhouse of the continent, has lowered growth forecasts to a barely treading above water 1% for 2012. Most were hoping that the manufacturing giant could sustain strong growth against the headwinds of Spanish, Greek, and Portuguese recession along with a lackluster UK and newly integrated eastern European economies.  As the world’s engines of growth stall one-by-one, the threats of a larger global recession increase, as the IMF has warned with increasing regularity.

How will the European slowdown affect the U.S. economy and can the U.S. avert even more economic troubles if Europe stalls?

Terrorism

Attacks on the U.S. Consulate in Benghazi and a recently thwarted attempt in Jordan in addition to continued fronts in Yemen and now Mali show that the treats of terrorism have not abated. As long as arms continue to flow into the hands of radical groups and weak or failed states remain the threat of violence will continue. Concerted and sustained action can, however minimize the depths of the threat and seriously disrupt organizations bent on destruction.

What can and should the U.S. do to further combat terrorist organizations? Is the Al-Qaeda threat still a focal point of U.S. foreign policy?

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